November 27, 2020

Quarterly Bulletin - Fall 2020

A sigh of relief

After being marked by COVID-related fears, the economic eclipse and anxiety over the US election, 2020 is giving way to relief and hope for a return to normality!

US election

Trump lost. Biden won. That was the verdict of US voters. According to Rafael Jacob of the Raoul-Dandurand Chair of Strategic and Diplomatic Studies, Donald Trump's chances of reversing the election results through legal remedies are non-existent. Although more voters turned out for the incumbent than for any of his predecessors, it simply wasn't enough to beat Joe Biden, who racked up a historic number of votes. This has led to a widespread sigh of relief and a palpable sense of hope for a return to slightly more conventional relations.

A bitter victory

However, the Democratic victory wasn't the blue wave or tsunami some had hoped for. Despite winning the White House, the Biden team lost seats in the House of Representatives, which will put it in a precarious position in the 2022 midterm elections. In addition, the fate of the Senate will be at play at the start of next year, as the last 2 seats will be decided in a run-off election on January 5. At the time of writing, the Republicans had 50 elected senators, compared with 48 for the Democrats. The Democrats need to take over the last 2 seats at stake just to reach a 50-50 tie, which would then be broken by the Vice-President's vote. The Democrats have won only one of the last 7 elections of this kind. Hopes are high, but it's a daunting task, particularly since Republicans will undoubtedly do everything in their power to keep their stranglehold on the Senate. It will be key for judicial appointments, the fiscal stimulus plan, health and infrastructure measures, and tax policies. The race for the Senate seats in Georgia will therefore reach a fever pitch.

A divided administration

While a divided administration isn't a necessarily bad thing for the economy and the stock markets, it's a different story for politicians who want to make major changes. To make headway, the Biden team will most likely need to negotiate across the aisle. It's therefore unlikely that we'll be seeing huge stimulus packages or substantial tax hikes. In the end, the de facto status quo may not be a bad scenario for the markets.

Finally closer to a vaccine

The stock markets reacted well to the US election results themselves, as well as to the calm atmosphere the streets. However, it was the promising results announced by vaccine candidate Pfizer and its partner, BioNTech, that boosted hopes for a return to a more normal life and led to a surge on the stock markets. The results are indeed interesting, as the vaccine would be 90% effective. However, a vaccine must be both effective and safe. Further data in this regard is expected by the end of the year. Until then, the rise in new infections will put pressure on the economy in the coming months. Companies tied to essential needs and services should continue to grow, as should companies in the new economy. For some companies, the pandemic has accelerated the inevitable outcome of an outdated business model. For others, it has precipitated a structural transformation of day-to-day operations. It has therefore created bright prospects for young businesses by creating new opportunities.